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@BobC: It's all in the quality of the tea leaves. With zero-interest rates stocks are the only game in town. The Fed will raise rates only when the benefit outweighs the liability. The economy is still to fragile for at rate increase this year. The market would make a very severe correction, 10-15%, if the Fed moves to quickly. Better later than sooner, and Yellen and the majority of the Board know this.
Lagarde says wait until early 2016. Says "disinflation risk" greater than inflation risk (ever so slightly). Does Ted channel future IMF news conferences?
Edit to comment: I don't understand what will be different in 2016.
Hi @Anna One must presume the "buying time" concept for all of these folks who "redistribute" monies around the globe. Higher rates transfer to the cost of money for central banks and the likes of "IMF", too....eh? Do ya think Ms. Yellen and Ms. Lagarde ever have a cup of coffee or other together, to chat about stuff?
And if the Fed does raise this year, all signs are it will be a quarter point, followed by a delay before any further move. If the market drops 10% in response to that, I'd be a buyer.
This year or next, it will probably be a non event when the FED does raise. Or it could be bullish as the most anticipated market event in recent history is out of the way. Isn't it three steps and a tumble anyway? I would be more concerned with the direction of the 10 year Treasury at this point and/or some adverse event in the junk bond market. The junk bond market bottomed in mid December 2008 months before the bottom in equities. So maybe at the market top in equities it leads again.
I'm not sure what the harm would be to raising ONCE, sometime in 2015, then waiting for subsequent data to determine the next move. Maybe that 2nd move comes 3-, 6-, or 9-months later (depending on unfolding data). If the US capital markets crater based on the removal of ZIRP, and its replacement with (gasp) 0.25% money, that is symptomatic of bigger problems.
Europe, Japan, China, they each have their own central banks to nurse them through soft economic times. The Fed needs to focus on US economic conditions. Let Draghi worry about/act for Europe.
Then too, 2016 is a presidential election year; the Fed would probably prefer to not have to take belated action then, and become a focus of election-year politicking. Raising rates once, in 2015, might inoculate against the need of multiple, rapid raises later.
It Fells Really Good to be confident in your abilities/ Knowledge/ and Feelings for What is going on in the Financial/investment World....Jeff fits this mold
9 The Idolatry of Interest Rates James Montier is a member of GMO’s Asset Allocation team. Prior to joining GMO in 2009, he was co-head of Global Strategy at Société Générale. Mr. Montier is the author of several books including “Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance; Value Investing: Tools and Techniques for Intelligent Investment"
Part I: Chasing Will-o’-the-Wisp May 2015 A wider idolatry: the greatest con ever perpetuated Lest you think I am being unduly harsh on the world’s poor central bankers, let me turn to the wider idolatry of interest rates that seems to characterise the world in which we live. There seems to be a perception that central bankers are gods (or at the very least minor deities in some twisted economic pantheon). Coupled with this deification of central bankers is a faith that interest rates are a panacea. Whatever the problem, interest rates can solve it. Inflation too high, simply raise interest rates. Economy too weak, then lower interest rates. A bubble bursts, then slash interest rates, etc., etc. John Kenneth Galbraith poetically described this belief as “...our most prestigious form of fraud, our most elegant escape from reality... The difficulty is that this highly plausible, wholly agreeable process exists only in well-established economic belief and not in real life.” Ultimately, the popularity of the equilibrium real interest rate amongst central bankers may simply be a case of “never ask a barber if you need a haircut,” and their resistance to the ideas outlined here is a function of Upton Sinclair’s view that “It is difficult to get a man to understand something when his salary depends on his not understanding it.” As someone insightful (if only I could recall who!) said: It is scary to realise you don’t know what is going on. It is even more terrifying to realise those in authority think they do. ( A little wonky but a good read ) https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-allocation/the-idolatry-of-interest-rates-part-1-chasing-will-'o-the-wisp.pdf?sfvrsn=6
Interesting side note; I checked out iBooks to see if this book was available. It is, at $83.00 a download. There are a number of books that discuss behavior and investing, with prices going between $50-80 plus. I guess behavior doesn't come cheap.
Comments
Edit to comment: I don't understand what will be different in 2016.
One must presume the "buying time" concept for all of these folks who "redistribute" monies around the globe.
Higher rates transfer to the cost of money for central banks and the likes of "IMF", too....eh?
Do ya think Ms. Yellen and Ms. Lagarde ever have a cup of coffee or other together, to chat about stuff?
And if the Fed does raise this year, all signs are it will be a quarter point, followed by a delay before any further move. If the market drops 10% in response to that, I'd be a buyer.
Europe, Japan, China, they each have their own central banks to nurse them through soft economic times. The Fed needs to focus on US economic conditions. Let Draghi worry about/act for Europe.
Then too, 2016 is a presidential election year; the Fed would probably prefer to not have to take belated action then, and become a focus of election-year politicking. Raising rates once, in 2015, might inoculate against the need of multiple, rapid raises later.
(Nods) Exactly.
The Idolatry of Interest Rates James Montier
is a member of GMO’s Asset Allocation team. Prior to joining GMO in 2009, he was co-head of Global Strategy at Société
Générale. Mr. Montier is the author of several books including “Behavioural Investing: A Practitioner’s Guide to Applying Behavioural
Finance; Value Investing: Tools and Techniques for Intelligent Investment"
Part I: Chasing Will-o’-the-Wisp
May 2015
A wider idolatry: the greatest con ever perpetuated
Lest you think I am being unduly harsh on the world’s poor central bankers, let me turn to the wider
idolatry of interest rates that seems to characterise the world in which we live. There seems to be a
perception that central bankers are gods (or at the very least minor deities in some twisted economic
pantheon). Coupled with this deification of central bankers is a faith that interest rates are a panacea.
Whatever the problem, interest rates can solve it. Inflation too high, simply raise interest rates.
Economy too weak, then lower interest rates. A bubble bursts, then slash interest rates, etc., etc. John
Kenneth Galbraith poetically described this belief as “...our most prestigious form of fraud, our most
elegant escape from reality... The difficulty is that this highly plausible, wholly agreeable process exists
only in well-established economic belief and not in real life.”
Ultimately, the popularity of the equilibrium real interest rate amongst central bankers may simply be
a case of “never ask a barber if you need a haircut,” and their resistance to the ideas outlined here is a
function of Upton Sinclair’s view that “It is difficult to get a man to understand something when his
salary depends on his not understanding it.”
As someone insightful (if only I could recall who!) said: It is scary to realise you don’t know what is
going on. It is even more terrifying to realise those in authority think they do.
( A little wonky but a good read )
https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-allocation/the-idolatry-of-interest-rates-part-1-chasing-will-'o-the-wisp.pdf?sfvrsn=6